Interpreting the new proposal ACP-77, how to unlock Avalanche L1?

Original author: Eden Au, The Block

Original translation: Felix, PANews

Key Points:

• ACP-77 is a community proposal that will change the validators dynamic of Avalanche L1 (previously known as subnet).
• Avalanche L1 validators no longer need to validate the main network and stake at least 2,000 AVAX. Instead, they will follow the requirements stipulated by the sovereign Avalanche L1.
• Avalanche L1 validators will pay ongoing dynamic fees to register information on the P-Chain.
• This proposal benefits both institutional and retail investor Avalanche L1, as it can achieve regulatory compliance and low entry barriers for validators.

For a long time, Avalanche has been a supporter of horizontal expansion using ‘subnet’, and now these subnets are renamed as Avalanche Layer 1 (L1). Avalanche L1 is a sovereign, usually application-specific blockchain that can be customized to meet specific needs of different use cases.

This infrastructure has attracted many encryption native customers and institutional customers to use Avalanche L1 to host their own Web3 platforms, including the Non-fungible Token platform of Japanese gaming giant Konami and the secure tokenization platform of Intain.

Over the years, Avalanche L1 has undergone multiple upgrades to enhance its functionality. For example, the Banff upgrade enables cross-subnet communication through Avalanche Warp Messaging (AWM). At the same time, Evergreen provides a framework for enterprises to launch privacy-protected and regulatory-compliant licensed Avalanche L1.

However, the existing Avalanche L1 validation requirements are still very high. The current Avalanche L1 validators need to validate the main network of Avalanche, including the contract chain (C-Chain), the platform chain (P-Chain), and the transaction chain (X-Chain).

As a reference, main network validators must allocate at least 8 AWS vCPUs, 16 GB RAM, and 1 TB storage space for network validation. They also need a minimum stake of 2,000 AVAX.

At the beginning of the network, the stake requirement was not high. However, due to the appreciation of Tokens over the years, it reached over 250,000 US dollars at the peak of the previous market, equivalent to 41,000 US dollars today. This high overall operating cost hinders the Decentralization of the Avalanche L1 validator set and may impede the reliability and adoption of the Avalanche ecosystem in the long run.

The cost of staking AVAX (in USD)

ACP-77

ACP-77 is a community proposal that will completely reform the creation and management design of Avalanche L1s, bringing more flexibility and autonomy to Avalanche L1 validators.

Sovereignty

According to the proposal, Avalanche L1 validators will no longer need to validate the main network at the same time. They only need to synchronize with the P-Chain, and the P-Chain tracks the changes of their own set of Avalanche L1 validators and handles cross-L1 communication through AWM. This change significantly dropped the operational and stake costs involved in participating in Avalanche L1 validation.

This separation will also allow regulated entities to only validate their licensed Avalanche L1s, as they can now choose not to validate the permissionless mainnet, which may include transactions that are potentially high-risk or not Compliance from their perspective.

In addition, Avalanche L1 can establish and implement its own validation rules and stake requirements, while the P-Chain will no longer support stake reward distribution for Avalanche L1. In other words, the sovereignty of Avalanche L1 returns from the P-Chain to L1 itself, which is a milestone in achieving horizontal scalability for multiple sovereign blockchains to run simultaneously.

Dynamic Fees

On the other hand, the proposal will change the fee mechanism of the P-Chain from a fixed Money Laundering per transaction to a dynamic fee that is more in line with the user pay principle. This change is aimed at ensuring the long-term economic sustainability of the network after the cancellation of the above 2,000 AVAX stake requirement.

The new dynamic fee mechanism involves Avalanche L1validators in continuous payments based on several factors (such as the total number of Avalanche L1validators registered on the P-Chain). The fee will be adjusted based on network utilization. When the total number of Avalanche L1 validators exceeds the target utilization rate, the fee will increase, and vice versa.

The basic principle is that each additional Avalanche L1 validator adds a load to the P-Chain. The P-Chain is responsible for storing the attributes of Avalanche L1 validators in memory, such as IP Address, BLS Secret Key, etc.

In fact, the balance of Avalanche L1 validators on the P-Chain will continue to be depleted and needs to be regularly replenished to maintain uninterrupted operation. This approach reduces the initial stake and hardware costs, dropping the entry barrier, while ensuring the continuous contribution to the sustainability of the network economy.

Summary

In short, ACP-77 aims to redesign the relationship between Avalanche L1s and the main network. Specifically, Avalanche L1s will gain greater flexibility and sovereignty as Avalanche L1 validators no longer need to comply with strict requirements imposed on main network validators, such as a minimum stake requirement of 2,000 AVAX, which significantly drops the operational costs of Avalanche L1 validators.

Avalanche L1 validators will pay dynamic fees to the P-Chain for the important metadata used for communication purposes by validators. This ensures that the main network receives fair compensation for the crucial work it provides for each Avalanche L1 validator, Avalanche L1, and cross L1 communication.

This proposal will make it easier for institutional L1 to achieve regulatory Compliance, while retail investor-centric L1 can benefit from a more Decentralization validators. These advantages will promote a larger, more diverse Avalanche ecosystem and expand the scale of the blockchain ecosystem.